Understanding Form 16

Understanding Form 16

Mr Rajesh who works for an software company is a techie guy. In the month of February, he received e-mail from his HR Department saying “please find the attached form 16 for your reference & password for the file is your employee ID”. Mr Rajesh was wondering what exactly is this form 16 & how should be figure it out.

Every year your employer will a certificate which gives information on the tax deducted at source (TDS) from income chargeable under the head “salaries”. Simply put, it gives details of the tax deducted by the employer. Form 16 is useful in filing your income tax return (ITR). Form no 16 is issued once in a year, on or before 31st May of the next year immediately following the financial year in which tax is deducted.

Form 16 has two sections—part A and part B.

Part A consists of personal details such as name and address, employer’s name and address, Permanent Account Number (PAN) of both, the employer’s Tax Deduction Account Number (TAN), and others. These details help the I-T department track the flow of money from your and your employer’s accounts.

PART-A

Part A also gives details such as the assessment year (AY)—the year in which your tax liability is calculated for the income earned the previous year. For example, for income earned between 1 April 2015 and 31 March 2016, AY will be 2016-17. This year’s Form 16 will show 2016-17.

This portion of the form also gives details of your period of employment with the current employer. For instance, if in the last financial year, you have worked from 1 April 2013 to 31 March 2014, it will be mentioned in the form.

Next, it gives a summary of the TDS by the employer on behalf of the employee. This is the amount that the employer deducts from your salary as tax periodically and credits it to the I-T department. For instance, if every month your employer deducts Rs. 3,000 as tax from your salary, it will be shown in the Form 16 as deposited by your employer to the government. The summary space will be divided based on the periodicity of how your employer credits the tax to the I-T department.

PART-B

Part B of Form 16 is the one that gives most of the details that you need to file I-T return, such as salary paid, other income, tax deducted, and more. Your gross income is mentioned first. Those who need to pay professional tax should note that the tax is not considered on the gross income.

Next, deductions are mentioned. These include those under sections 80C, 80CCC and 80CCD (contributions towards Public Provident Fund, life insurance policies, pension, among others). Remember, the aggregate amount deductible under these three sections should not exceed Rs.1.5 lakh. Then come the deductions under other sections such as 80D (health insurance premium), 80E (interest on education loan), 80G (donations), and others.

The total deductions are reduced from the gross income to arrive at the taxable income. Tax is calculated on this amount based on your tax slab.

Due date for filing of tax returns

·        Form 16 is one of the documents that you need to keep handy before or while filing your ITR, which has to be done till 31 July.

·         While all deduction related details are mentioned in Form 16, you should cross-check the amounts with your investment and other documents.

·   Remember Form 16 only declares TDS from salary. For other incomes, there are other forms. For instance, income from bank fixed deposit (FD) will be in Form 16A. You can get this form from the source. So, if you have interest income from a bank FD, you will have to get Form 16A from the bank.

·         Another form that comes handy is Form 26AS, the tax credit statement. It will help you verify details of TDS. Using this form you can check if your company or bank has indeed paid the tax and correctly reported to the I-T department. Form 26AS is available on the I-T department’s website. In case you have changed your job during the year, you have to get Form 16 from both employers and then file your ITR.

Is it mandatory for the employer to issue you a Form 16?

TDS certificate in Form 16 is only required to be issued to the employee when TDS has been deducted. In case no TDS has been deducted by the employer they may not issue you a Form 16.

When the employer deducts TDS and does not issue a certificate

Any person responsible for paying salaries is required to deduct tax at source on the amount payable. The act lays down that every person who deducts TDS from a payment must furnish to the recipient a certificate with details of tax deducted. An employer is compulsorily required to furnish you a certificate, in the format of Form 16, specifying that tax has been paid to the Central Government, with the amount so paid and other prescribed particulars.

An employer may be liable to pay a penalty for non-issuance of Form 16 where TDS was deducted.

If Form 16 has not been issued to me, does it mean I don't have to pay tax or file a return?

While the onus of deducting tax on salaries and providing a certificate of TDS is on the employer - the onus of paying Income Taxes and Filing of Returns is on the employee. If your income under all heads, including salaries, is above the minimum taxable income (Rs 2,50,000 for financial year 2015-16) you are required to pay tax and file your income tax return.

It should be understood that though, the employer has deducted TDS from the salary of their employees but has not submitted the same with the IT Department. Under such context, firstly check your Form 26 AS, which should also have details with respect to your TDS. If the other form also is clueless about your TDS deduction, then it is time to demand the same from the employer and if the same is still denied, then one can sue his employer for the same.

Prepare and submit your return, even though your employer did not deduct any tax or where he fails to issue you a Form 16. In case you changed jobs during the year, do remember to include income from all your employers, whether or not a Form 16 was issued

Time-Limit for Issue of Form 16

The TDS certificate in form 16 shall be issued annually by 31st Day of May of the financial year next following the financial year in which the income was paid and tax deducted.

Form 12BA

Form 12BA is a statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary thereof granted by your employer to you during the year. 

·     Perquisites (or perks) are additional monetary / non-monetary benefits that you may have been granted throughout the year like rent free accommodation, interest free or concessional loans, etc. 

·      Profits in lieu of salary means any payment due to or received by you from your employer in connection with or at the time of termination of employment or modification in terms and conditions relating thereto like gratuity, pension, etc. 

The form also confirms the amount of tax deducted from your salary and paid into the Government Treasury by your employer.  The statement should also contain declaration from the employer that the figures stated in the form are correct and accurate as per their books of accounts.